In re Allcat Claims Serv. L.P.
| Decision Date | 28 November 2011 |
| Docket Number | No. 11–0589.,11–0589. |
| Citation | 55 Tex. Sup. Ct. J. 103,356 S.W.3d 455 |
| Parties | In re ALLCAT CLAIMS SERVICE, L.P. and John Weakly, Relators. |
| Court | Texas Supreme Court |
OPINION TEXT STARTS HERE
James F. Martens, Michael Boydstun Seay, Lacy L. Leonard, Amanda Marie Traphagan, Martens Seay & Todd, G.P., Austin TX, for Plaintiff.
Kevin D. Van Oort, Deputy Chief—Financial & Tax Litigation Div., Greg W. Abbott, Attorney General of Texas, Susan Combs, Texas Comptroller of Public Accounts, Danica Lynn Milios, Jonathan F. Mitchell, David C. Mattax, William J. “Bill” Cobb III, Bill Davis, Office of the Attorney General, Daniel Tekstar Hodge, First Asst. Attorney General, Austin TX, for Defendant.
George S. Christian, Texas Taxpayers and Research Association, Austin, TX, for Amicus Curiae Texas Taxpayers and Research Association.Christopher S. Johns, Dawson & Sodd LLP, Austin, TX, for Amicus Curiae Nikki Laing, CPA.Thomas Jensen Morgan, Texas Association of Realtors, Austin, TX, for Amicus Curiae Texas Association of Realtors.Juan F. Vasquez Jr., Chamberlain Hrdlicka White Williams & Aughtry, Houston, TX, for Amicus Curiae Tyson Hoffer.Justice JOHNSON delivered the opinion of the Court, in which Chief Justice JEFFERSON, Justice HECHT, Justice WAINWRIGHT, Justice MEDINA, Justice GREEN, and Justice GUZMAN joined.
In this original proceeding Allcat Claims Service, L.P., a limited partnership, and one of its limited partners seek an order directing the Comptroller to refund franchise taxes Allcat paid that were attributable to partnership income allocated, but not distributed, to its natural-person partners. Allcat claims it is entitled to a refund for two reasons. First, the tax facially violates Article VIII, Section 24 of the Texas Constitution because it is a tax on the net incomes of its natural-person partners that was not approved in a statewide referendum. Second, as applied by the Comptroller to Allcat and its partners, the franchise tax violates Article VIII, Section 1(a) of the Constitution, which requires taxation to be equal and uniform. We hold that: (1) the tax is not a tax imposed on the net incomes of the individual partners, thus it does not facially violate Article VIII, Section 24; and (2) we do not have jurisdiction to consider the equal and uniform challenge.
In 1993 Texas voters adopted Article VIII, Section 24 of the Texas Constitution, frequently referred to as the Bullock Amendment.1 See Tex. S.J. Res. 49, §§ 1–2, 73d Leg., R.S. (1993) (adopted Nov. 2, 1993). Section 24 provides in relevant part that
[a] general law enacted by the legislature that imposes a tax on the net incomes of natural persons, including a person's share of partnership and unincorporated association income, must provide that the portion of the law imposing the tax not take effect until approved by a majority of the registered voters voting in a statewide referendum held on the question of imposing the tax.Tex. Const. art. VIII, § 24(a).
A decade later a Travis County district court determined that the manner in which Texas funded its public schools was unconstitutional. Neeley v. West Orange–Cove Consol. Indep. Sch. Dist., 176 S.W.3d 746, 753–54 (Tex.2005). The court enjoined further state funding of the schools, but stayed the effect of its injunction until October 1, 2005, in order to give the Legislature time to cure the constitutional deficiencies. Id. The state defendants 2 appealed, and this Court was “[o]nce again ... called upon to determine whether the funding of Texas public schools violates the Texas Constitution.” Id. at 751. We issued our opinion on November 22, 2005 and held that the State's system for financing public schools violated the Texas Constitution. We also changed the effective date of the district court's injunction to June 1, 2006. Id. at 796–99.
After the Travis County district court rendered its judgment in November 2004, and while the appeal was pending in this Court, the state actively worked on a different approach to funding public education. The 79th Legislature considered alternative methods of funding in its regular session and in two special sessions that lasted into August 2005. During this same period, the Governor also established the Texas Tax Reform Commission to study how to “modernize [Texas's] tax system and provide long-term property tax relief as well as sound financing for public schools.” Press Release, Office of the Governor, Gov. Perry Names 24–Member Texas Tax Reform Commission (Nov. 4, 2005), available at http:// governor. state. tx. us/ news/ appointment/ 5077/. The Commission held its first meeting the day before we issued West Orange–Cove.
In the months following our West Orange–Cove decision the Commission conducted hearings around the state. Based on its study, research, and those hearings the Commission identified four main concerns with the State's tax system: (1) property taxes were too high; (2) taxes should be as broad and as low as possible; (3) schools should be the priority for state funding; and (4) the State's property taxes make it difficult to attract businesses without substantial incentives. See Report of the Texas Tax Reform Commission, Tax Fairness: Property Tax Relief for Texans 16 (2006), available at http:// govinfo. library. unt. edu/ ttrc/ files/ TTRC_ report. pdf. The Commission's proposals included increasing the number of business forms subject to the franchise tax, which is the State's business tax. Id. at 18. The Commission noted that
[f]or nearly a century the [franchise] tax has been applied to corporations. The original purpose of the franchise tax—and that which the Commission finds is still valid—was to collect a modest levy in return for the tremendous value afforded to businesses that chose to benefit from a state-provided liability shield. However, the recent spread of new business forms such as limited-liability partnerships have tapped the state's protections previously available only to corporations while avoiding the very levy designed to reflect the value of that protection. Tax-free status has thus been secured by many firms, to the competitive detriment of those remaining in corporate form.
As part of the effort to provide lasting property tax relief, establish a stable and long-term source of funding for public schools, and meet the June 1, 2006 deadline set in West Orange–Cove, the 79th Legislature, in its third called session, enacted several amendments to the Texas Tax Code. See Act of May 2, 2006, 79th Leg., 3d C. S., ch. 1, §§ 1–27, 2006 Tex. Gen. Laws 1, 1–41 (the Act). The amendments were codified in Chapter 171 of the Tax Code and reflect many of the Commission's proposals, including its proposal to increase the number of business forms subject to the franchise tax. For the first time limited partnerships and certain other unincorporated associations were required to pay the tax. See Tex. Tax Code §§ 171.0002, 171.001. It is these amendments and their application that are the subject of this proceeding against the Comptroller and the Attorney General (collectively, the Comptroller).
Allcat Claims Service, L.P. is a Texas limited partnership that provides adjusting services to property insurers. It inspects damaged property to determine the cause of the damage and the costs of repair. Allcat's limited partners include relator, John Weakly. For tax years 2008 and 2009 Allcat paid franchise taxes under protest, then filed two suits seeking a refund: this original proceeding and a suit in the 201st District Court of Travis County. Here, Allcat seeks (1) an order requiring the Comptroller to refund that portion of the 2008 and 2009 franchise taxes it paid that are referable to its natural-person partners' shares of Allcat's income; 3 (2) a declaration that the franchise tax is unconstitutional to the extent it taxes partnership income allocable to its natural-person partners; (3) an injunction directing the Comptroller not to assess, enforce, or collect the franchise tax to the extent it applies to Allcat's income allocated to its natural-person partners; and (4) a declaration that the Comptroller's interpretation of certain franchise tax provisions violates Allcat's right to equal and uniform taxation under the Texas Constitution. Allcat asserts the same equal and uniform taxation claim in the Travis County suit “to preserve the claim in the event this Court decline[s] to exercise jurisdiction over [it].”
The first basis on which Allcat and Weakly (collectively, Allcat) rely for relief, which we reference as the facial challenge, is that the amendments to the franchise tax statutes violate Section 24 of the Constitution because their effect is to impose an income tax on the net incomes of natural persons, despite the fact that the tax has not been approved in a statewide referendum. The second basis, which we reference as the as-applied challenge, is not that the franchise tax statutes are unconstitutional, but rather that the Comptroller's interpretation and application of them violate the equal and uniform taxation clause of the Texas Constitution. See Tex. Const. art. VIII, § 1. Allcat also seeks attorney's fees pursuant to the Declaratory Judgments Act (DJA). See Tex. Civ. Prac. & Rem.Code §§ 37.001–.011. 4
The jurisdiction of all Texas courts, including this Court, derives from the Texas Constitution and state statutes. Chenault v. Phillips, 914 S.W.2d 140, 141 (Tex.1996) (per curiam). Absent an express constitutional or statutory grant, we lack jurisdiction to decide any case. Id.
The Constitution is silent about taxpayer suits, but Texas statutes have long vested our courts with the responsibility to adjudicate these disputes. Under applicable statutory provisions, which are not challenged by Allcat, taxpayer suits contesting either (1) the validity of a state tax or (2) the authority...
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